In today’s technological age, and after two years of social distancing, Zoom meetings and working from home, more people than ever are using social media as a source of advice and knowledge.
The rise of influencers and finfluencers
Financial influencers (“finfluencers”) have seen an explosion in popularity on social media, with younger generations turning to these finfluencers for advice on everything from buying property to investing in stocks. ASIC’s ‘Young People and Money – Survey Snapshot’ published in December last year found that a third of 18-21 year olds follow at least one finfluencer on social media and 64% of young people changed their financial behavior by following an influencer. .
An influencer, as the name suggests, is someone who has an established audience and social influence over that audience. Influencers create and post content online on social media platforms such as Instagram, YouTube, TikTok or Reddit, and often collaborate with companies to market a product or service in exchange for compensation or other benefits .
Background to INFO 269
In response to the rise of finfluencers, on March 21, 2022, ASIC released a fact sheet (NEWS 269) outlining how financial services laws apply to influencers and Australian financial services (SFA) the licensees who use them.
ASIC Commissioner Cathie Armor said: “It is crucial that influencers discussing financial products and services online comply with financial services laws. If they don’t, they face substantial penalties and put investors at risk.1
The publication of INFO 269 comes at a time when government authorities are seeking to regulate the impact of new technologies on consumers, and the use of social networks as an information platform and as a sales channel. For example, in the therapeutic goods space, the Therapeutic Goods Administration introduced a new Therapeutic Goods Advertising Code on January 1, 2022, which prohibits testimonials and endorsements from paid and incentivized influencers in the goods space. Therapeutic Products (for more details, please see Addisons guidance document “New Code for Advertising of Therapeutic Products Effective January 1, 2022”).
Financial Services Laws
The Companies Act 2001 (Cth) (Corporations Act) requires a person carrying on a financial services business in Australia to hold an Australian Financial Services License (AFSL), be exempt from this requirement, or be appointed as an authorized representative of an AFS license holder. INFO 269 is a warning to influencers and the AFS licensees who use them, to ensure that the online content they produce and the manner in which they seek to promote products and services complies with the law. It covers a range of issues, including:
- AFS licensing requirements for those operating a financial services business, for example providing financial product advice or trading/arranging a financial product (unless relying on an exemption or appointment as authorized representative of an AFS license holder);
- prohibition of misleading or deceptive conduct;
- the risk management, monitoring and compliance obligations of AFS licensees who use influencers; and
- the design and distribution obligations that apply to both issuers and distributors of financial products.
It also warns influencers that ASIC will take enforcement action if it is in the public interest to do so, including to protect investors from harm and to maintain market integrity.
Why do influencers risk breaking financial services laws?
A person provides financial product advice if they make a recommendation or express an opinion that is intended to influence another person’s decision regarding a financial product.
So the problem is written on the box! Since the function of influencers is to influence their audience to behave in a certain way, and making statements that could influence someone to make decisions about financial products is “financial product advice” , there is real potential for the role of an influencer to put him or her squarely in the business of providing “financial product advice”.
The relative ease and informality with which influencers can interact with their audiences means that there is also a greater opportunity to publish content without the same level of editorial control applicable to other media and/or without including the disclaimers relevant disclaimers or using appropriate terminology. .
Examples of influencers potentially providing financial services
INFO 269 gives some examples of influence activities that could be categorized as financial services, which would require the influencer to hold an AFS license, be exempt from the requirement or be authorized to provide these services as an authorized representative of another person who holds an AFS license. These include:
- recommend financial products to an audience to “influence” their financial behavior (for example, to induce the consumer to purchase that financial product), particularly where the influencer receives a benefit or payment for making the recommendation; Where
- sharing a unique link to financial products or services in exchange for a benefit or payment (also known as “affiliate marketing”).
Please be aware that these are only examples and not an exhaustive list of potentially problematic behaviors.
What is not in the realm of providing financial services?
The case studies suggest that the following would not constitute the supply of a financial service:
- share tips on saving money and budgeting, not to mention financial products or services; and
- provide details of AFS licensees who have a platform to trade financial products without further influencer involvement in any subsequent transactions.
Misleading and deceptive conduct
ASIC’s warnings don’t end there: finfluencers must also ensure that their content is not misleading or misleading. Here are some examples of misleading and deceptive conduct:
- provide a guarantee or statement about the performance of a particular financial product without ensuring that the content is accurate or balanced; Where
- make a complaint about a financial product or service that is false, inaccurate, unsubstantiated or without reasonable cause.
What is the problem for financial services companies that hire influencers to promote them?
ASIC has warned that AFS licensees could be held liable for the misconduct of the influencers they use. In these circumstances, AFS licensees should ensure they have appropriate systems in place to assess and monitor their influencer compliance.
Additionally, AFS licensees should consider whether the use of influencers is consistent with their design and distribution obligations (DDO). In a nutshell, the DDO regime requires that financial products target the appropriate category of consumers, taking into account their main characteristics, including likely objectives, financial situation and needs, as set out in a “target market determination”. published by the licensed AFS.
Thus, if an AFS Licensee intends to engage an Influencer to promote a Product that falls under the DDO Regime, it will need to take reasonable steps to ensure that the Influencer promotes the Product in a manner that only reaches consumers in the target market, and not a wider group of consumers.
In light of INFO 269, influencers and AFS licensees who use them (who are required to train and monitor their influencers for compliance) should review and edit their content as necessary to ensure it does not violate not applicable laws. If an influencer provides financial services, it (and its associated AFS licensee) must ensure that the influencer has the necessary license, exemption or authorization to do so.
As the role of social media as a sales channel continues to grow and being a social media influencer is increasingly a potentially lucrative source of income, the risks of breaking the law are also increasing. If you are an finfluencer, or in the financial services space and are considering using an finfluencer, now is the time to take a close look to make sure your business is on the right side of the line.